by Daniel Gross Abr 22 2007 Why American billionaires are snapping up Britain's most valuable soccer teams (and why the trend is likely to continue)

On March 6, private equity baron Tom Hicks, owner of the Texas Rangers and Dallas Stars and a frequent attendee of University of Texas football games, was exposed to some real sports fans. Hicks was at Anfield, the home stadium of Liverpool Football Club, the British soccer team he and his business partner George Gillett acquired for $920 million, to watch his club face off against Spanish rival Barcelona in the prestigious Champions League.

Liverpool lost 1-0. But at the close of the game, 42,579 fans stood, Liverpool scarves and banners outstretched, and roared the team’s theme song, “You’ll Never Walk Alone.” A few thousand Barcelona fans sang along out of respect. “I’ve never seen anything like that,” Hicks recalls, speaking on the telephone from his plane a week later. “It gave me goose bumps.”

The rendition of the Rodgers & Hammerstein standard isn’t the only thing giving goose bumps to Hicks and Gillett. “Liverpool has 28 million registered fans around the world,” Hicks says, referring to the team’s website. “They have huge numbers of fans in the U.K., in Europe, and in Asia.” The game he witnessed was broadcast in 183 countries.

This combination of intense local support and huge global appeal is a key reason why Hicks and other prominent American investors have purchased well-known British soccer teams. Last summer, Randy Lerner, who inherited the N.F.L.’s Cleveland Browns and billions of dollars from his father, former MBNA head Alfred Lerner, bought Aston Villa, a middling club in Britain’s Midlands, for $120 million. And in 2005, Malcolm Glazer, the corporate raider who owns American football’s Tampa Bay Buccaneers, bought Manchester United, the most popular and richest soccer club in Britain, for $1.5 billion.

What gives? For one thing, these guys have simply run out of teams to buy on their own soil. Franchises in big-money North American sports are like Vermeer paintings: There aren’t many (among them, the N.F.L., the N.B.A., the N.H.L., and Major League Baseball count 122 teams), virtually all are in private hands, and on the rare occasions they do come on the market, the bidding is frenzied. And financially speaking, soccer in the United States is small beer. Major League Soccer, now in its 12th year (oh, you didn’t notice?), remains a financial midget. The hoopla surrounding David Beckham’s late-career move to the Los Angeles Galaxy, which could earn him up to $250 million, has more to do with merchandising than with the beautiful game.

But there’s a larger business story here, one that echoes the argument of Franklin Foer’s 2004 book How Soccer Explains the World: An Unlikely Theory of Globalization. For sports investors, the U.S. market—vast as it is—has limited growth potential compared with the rest of the world. “There are by far more soccer fans globally than there are American-football fans,” says Hicks. Countries such as China and India are minting countless new consumers every year. Alas, few are interested in following the onfield exploits—or buying the licensed merchandise—of U.S. sports stars like Peyton Manning and Derek Jeter.

Meanwhile, the English Premier League has landed huge television contracts. In 2006, it inked a three-year, $3.1 billion deal for domestic television rights with Setanta, a pay-per-view company, and BSkyB, a unit of News Corp. (Half of the revenue is shared equally among teams, while half is awarded on a sliding scale based on where teams finish in the standings.) Earlier this year, the league made another deal, which nearly doubles the fees it receives for international rights—about $1.25 billion for the 2007-2008 season, part of the $5.3 billion it will earn from selling its broadcast rights from 2007 to 2010. “We think the Premier League will have the biggest television revenue of any sport in the world over the next 20 years,” Hicks says.

It’s not just Americans who see the potential. Among the owners of Premier League teams are Mohamed al-Fayed, the Egyptian owner of the department store Harrod’s (Fulham), Russian energy billionaire Roman Abramovich (Chelsea), and Icelandic businessman Eggert Magn�sson (West Ham United). Because British soccer teams recruit players from all over the world—and then beam the games back all over the world—many are already strong global brands.

To U.S. entrepreneurs, the British league offers a purer form of capitalism than sports at home does. With salary caps, luxury taxes, revenue-sharing arrangements, and draft systems (under which this year’s losers get first dibs at next year’s talent), big-time pro sports in the U.S. is basically socialism among billionaires. British soccer is a far more Darwinian affair. There are no salary caps. Each year, the worst three (of 20) teams in the Premiership are kicked out and must play the following year in the second division, the Football League (also known as the Coca-Cola League), and the top three teams from the second division are promoted. For teams relegated to the second division, fan support and television revenue plummet.

That highlights a great risk: Foreign investors paying top dollar for undistinguished Premier League teams (such as Aston Villa) can quickly find their teams out of the money. Imagine if the Arizona Cardinals, finishing up yet another miserable season, had to play in the Arena Football League next year. The Icelandic investors who spent about $170 million last fall to buy West Ham United, which reached the F.A. Cup finals in 2006, must have thought their downside was limited. But the club has been hit by a succession of injuries, and its star-filled roster has yet to jell. As of early March, West Ham was ranked last in the Premiership. So much for the five-year business plan.

That’s why Hicks was drawn to a trophy property like Liverpool. “If you’re one of the top four teams, the combination of television revenue and the fact that you can compete for the Premiership championship and the [Champions] League, as well as F.A., cups” presents a significant upside, he says.

How does the fan base feel about all these Yank owners? After some initial, um, resistance (Manchester United followers actually trampled American flags when they heard Glazer had bought their club), most British soccer fans accepted with relative equanimity the prospect of colonials snapping up their beloved teams. Winning will do that. (Man U. is on track to win the Premiership and is still alive in both the prestigious F.A. Cup competition and the Champions League.)

The American owners have smoothed things out by speaking softly and listening carefully, although Hicks concedes there might be some difficulty bridging the gap between his Texas drawl and Liverpool’s Scouser dialect. They’ve acknowledged their ignorance about the game, left management in place, and kept low public profiles. Mark Cuban and George Steinbrenner they’re not—except in the wallet. Hicks and Gillett have pledged to bring their expertise to help jazz up the new stadium Liverpool is planning to build, and Randy Lerner, who spent his junior year abroad at the University of Cambridge, has been a godsend to Aston Villa, in unfashionable Birmingham, a team that is generally starved for capital. He used about $35 million of his own money to bring in two hot strikers, which has improved his credibility with fans and increased the club’s chances of playing in potentially lucrative European competitions.

The larger question is how, precisely, these successful capitalists plan to make money from their investments—short of flipping the teams to a deep-pocketed soccer-loving magnate in a few years. After all, they’ve promised not to engage in the types of transactions that have allowed them to profit from industrial acquisitions, e.g., taking on debt to pay out dividends to owners. And though clubs can be profitable, constant investment in new players and stadiums is required. Being an owner of an elite global sports franchise is like being a member of a very exclusive club—one with a high initiation fee and steep annual dues.

Based on his experience in private equity, Hicks has come to understand that proprietary consumer products branded in their markets and deriving their revenue from corporate sponsorships tend to turn profits and increase in value. “When I started investing in sports, I made the decision that these would be long-term assets, probably two generations,” he says. “To have three teams that play year-round on a global platform really positions me for the next 25 years.”